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Ukrainians to Pay 5% Tax on Crypto Incomes

A draft law made by deputies and representatives of the industry aims to bring in light taxation of crypto incomes in Ukraine. Businesses and individuals will be required to pay 5% tax on their earnings from trading and mining cryptocurrencies when exchanged to fiat. Add to that the mandatory ‘military charge’ of 1.5% all Ukrainians owe the state since the start of the conflict in the East.

Ukrainians to Pay 5% Tax and 1.5% Military Charge on Crypto Profits

Despite their increasing popularity, cryptocurrencies are not yet legalized and regulated in Ukraine. Three bills are stuck in the Rada since last October and 4th one is expected to be filed this September. The country’s developing crypto sector is expecting authorities to do that as quickly as possible but officials in Kiev have been slow to grasp the phenomenon and find out what to do with it.

Now when Ukraine gets closer to adopting regulations after the authorization of a regulatory concept last month, a new draft law addresses the aspects of taxation. The authors want it to be enforced in 2019 and stay in place until 2025. Several deputies led by Ukrainian lawmaker Oleksiy Mushak and two dozen representatives of the crypto business are working on the bill which proposes а temporary tax regime in the sector.

The draft envisages the introduction of a 5% tax rate on profits from cryptocurrency trading and mining, Liga Business reported. The tax will be levied at the difference between the buying and selling price of digital assets, and the difference between mining income and mining expenses. It will be due only when the crypto funds are exchanged to fiat or in case of payments for goods and services, including property. Crypto-to-crypto transactions will not be taxed.

According to Mushak, the crypto market has a positive attitude toward the proposals in the legal document. “The state shouldn’t touch the exchange between cryptos but the exit to fiat, the real sector, and the buy goods. 5% sounds optimal. In fact – this is the price to pay for the legalization of income from dealings in crypto,” says Artiom Afyan, managing partner at Juscutum law firm.

In addition, Ukrainians profiting from cryptocurrencies, will be expected to pay the so-called “military charge” – 1.5% on their incomes as private individuals. The tax was imposed as a temporary measure to finance the reform of the Armed Forces of Ukraine in August 2014. Ukraine’s army is engaged in a military conflict with pro-Russian forces in the Eastern part of the country since the spring of the same year.

Regulations and Regulators

According to the new draft, the crypto market will be regulated by the National Securities and Stock Market Commission (NSSMC). The body is composed of representatives of the NSSMC, the National Bank of Ukraine, the Ministry of Finance, the Deposit Guarantee Fund, and the National Financial Services Market Commission. Recently, the regulatory concept made by the agency received support in Ukraine’s Financial Stability Council.

Details about the new concept were made public by the NSSMC in July. The Finance Ministry and the State Fiscal Service should implement the tax regime. The Commission is also expected to take responsibility for licensing and oversight of crypto exchanges as well as the regulation of ICOs. It defines cryptocurrency as “token that functions as method of exchange and store of value”, and tokens are split into “centralized or decentralized units of account” that are “cryptographically secure.”

According to Konstantin Yarmolenko, adviser to the head of Ukraine’s Electronic Government Agency, rules should be adopted in order to protect investors and not for the sake of regulation itself. Alexander Momot, CEO of the Ukrainian crypto startup Remme, thinks that in order to stimulate the development of the crypto sector in the country, tax and regulatory breaks should be introduced instead of tax and regulatory regimes.

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